Powers of attorney are instruments that can form part of an individual's estate plan or can be devised separately if they prefer. Two main types of powers of attorney are financial powers of attorney and health care powers of attorney. First, a financial power of attorney allows a person to designate someone else to manage their assets and financial affairs in a specified range of circumstances. Meanwhile, a health care power of attorney is a legal document that grants someone the power to make decisions about your medical care should you become incapacitated.
You should keep your signed and notarized power of attorney in a safe place, where your agent can easily access it when the time comes. You may also consider distributing copies to people and institutions covered under the power of attorney, like banks and insurance providers.
A power of attorney can be made durable, which means that it remains in effect if a person becomes incapacitated and cannot handle their own affairs. (A non-durable power of attorney automatically loses its effect if the person loses their mental capacity.) In order for a durable power of attorney to be valid, it must be signed before you become incapacitated. It should contain language such as: “This power of attorney shall not be disturbed by subsequent incapacity…” or “This power of attorney shall become operational upon the incapacity of the principal.” As long as you have capacity, your durable power of attorney can be revoked, provided the revocation is in writing and is delivered to the agent. The durable power of attorney automatically terminates when you die. The advantage of a durable power of attorney is that the person creating it – not a judge – selects the person who will act on their behalf during a time of incapacity. It can give you peace of mind, knowing that you have named someone to handle significant matters. It can also avoid a time-consuming and expensive court proceeding.
Financial Power of Attorney
An individual granted a financial power of attorney is known as the agent, and the principal is the person designating the power. The principal can decide how much responsibility to grant to the agent. The principal can confer an extensive range of authority or can limit the agent’s power to a sole transaction. The power of attorney should be designed to fit the principal’s particular needs.
The principal must chose someone he or she trusts as an agent because the agent has power to make important decisions on the principal’s behalf. The principal can name multiple agents to act either jointly or independently. The power of attorney may authorize the principal’s agent or agents to complete tasks such as the following:
Fund support and care;
Perform financial transactions;
Handle legal claims;
Manage insurance and retirement benefits;
File tax returns;
Collect social security benefits; and
Perform trust duties.
If the agent is given authority to make decisions about real estate, the power of attorney must typically be recorded, along with the deed, in the county clerk’s office.
The agent is required to follow the principal’s written and oral instructions and act in the principal’s best interests. If the agent fails to do so, he or she may be liable for damages. It is wise for the principal to name an alternate agent in the event that the agent resigns, dies, or becomes incapacitated.
There is no guarantee that a power of attorney will be recognized by third parties, such as the Social Security Administration, the Veterans Administration, or the Internal Revenue Service. The principal must ensure that the power of attorney is presented to the agency in a way that contains the particular wording mandated by each agency’s specific form.